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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Advanced Braking Technology (ASX:ABV). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
See our latest analysis for Advanced Braking Technology
How Fast Is Advanced Braking Technology Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. To the delight of shareholders, Advanced Braking Technology has achieved impressive annual EPS growth of 39%, compound, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Advanced Braking Technology achieved similar EBIT margins to last year, revenue grew by a solid 8.0% to AU$15m. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
Advanced Braking Technology isn't a huge company, given its market capitalisation of AU$32m. That makes it extra important to check on its balance sheet strength.
Are Advanced Braking Technology Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
Despite AU$675k worth of sales, Advanced Braking Technology insiders have overwhelmingly been buying the stock, spending AU$1.2m on purchases in the last twelve months. An optimistic sign for those with Advanced Braking Technology in their watchlist. It is also worth noting that it was company insider Keith Knowles who made the biggest single purchase, worth AU$350k, paying AU$0.055 per share.